Federal Reserve Bank on the current recovery…the good and the bad.

Last week I attended an SIOR event that featured a speaker from Federal Reserve Bank of Chicago, here are my notes.

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Recovery from 2009 has not been as strong as past recessions. Why?
1. Hesitant growth since 2009
2. Spike in financial stress. Tight lending principals. Now stress is low.
Solutions:
1. Fed has kept Fed Fund target rate close to zero. Fed raised rate 50 basis points in Dec 2015
2. Quantitative easing. Buying securities, fed holds over $4T.
Impacts:
1. Food below inflation
2. Energy (oil) price are low.
3. Long term unemployed (more than 6 months) is at its highest historical level, but it is going down. One example would be people who want to work full time only working part time.
4. Labor force participation is low, but getting better. One reason may be wages have not increased.
5. Broad based recovery. Auto and auto parts/components. Fed sees a 2.4% manufacturing increase in 2017.
6. Dollar has been increasing. Good for US consumer detrimental for exports/manufacturing.
Next:
1. Inflation is beginning to increase +\-2%.
2. Employment has been steady, but not growing too much.
3. IL. Unemployment is creeping up (bad).
4. Housing starts are increasing steadily over 1M per year.
5. Interest rates are staying low.

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Market’s strength = closer to the end?

{Singing} It’s beginning to look a lot like 2007…record low cap rates, spec construction at a fever pace, high rental rate expectations, bullish forecasts of continued growth.  Despite what our presidential candidates would tell us, the real estate world is on a roll.

thMulti-channel distribution networks are absorbing distribution space at a phenomenal pace. eCommerce has in effect made warehouse equivalent to retail! More technology and more people are being deployed to meet global supply chain demands. The market dynamics are pushing all boundaries.

Unfortunately all good things must come to an end. Believe me I have my board and plan to ride this wave at maximum pace.  But how long can this last?  I hope a long, long time! In the mean time keep singing.

SIOR leaders discuss boutique commercial real estate firms

Boutiques Resilient in Face of M&As

By John Salustri | Globe Street

CHICAGO—The spate of multinational service providers gobbling up—or being gobbled up by—other multinational service providers leaves one to wonder what the smaller boutiques, the moms-and-pops of the industry, are thinking. Members of the Independent Brokers Group of the Society of Industrial and Office Realtors aren’t flinching.

Thornburgh: “There will always be a substantial place in the market for the highly skilled boutique and regional firms.”  It was an appropriate time to chat with the folks of SIOR (a GlobeSt.com Thought Leader), given that the association’s Fall World Conference is set to kick-off here on October 8. And while the consolidation trend does tip the scales of competition toward the big boys, there’s plenty to be gained from the boutiques.

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“The larger firms can control the market, setting rental rates and term structure,” says Jason M. Crimmins, CCIM, SIOR, president of the Short Hills, NJ-based Blau & Berg Co. “But there are corporate users who recognize the value and local expertise that independent firms have to offer. As an independent, we bring not only our local proficiency but every other SIOR independent’s local expertise.”

That’s where the IBG comes in, he says. “The IBG has been crucial in uniting our firms, and helping us display our local market expertise while providing a global network of SIOR professionals.” In essence, he says, the IBG gives otherwise regionally restricted firms an unprecedented national reach.

Robert G. Thornburgh, SIOR, CCIM, CPM, president and CEO of Heger Industrial in Long Beach, CA, is equally philosophical about the rise of the M&A trend—and the strength of the independent broker in the face of that trend. “All businesses, large or small, are continually searching for efficiencies and developing ambitious growth plans,” he observes. “A vibrant company closely examines procedures; systems; and inevitably, its people.” As a result, he adds, there should be no surprise that consolidations are taking place. “It’s a natural part of this process.”

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Crimmins: “Relationships can become a factor only when results are provided.” But that activity doesn’t change the role of “the skilled, independent niche operator. Consolidation and recent growth are certainly in part being fueled by larger corporate clients who are opting for the efficiency of a single provider,” says Thornburgh, who is director of SIOR’s Western region. “However, there will always be a substantial place in the market for the highly skilled boutique and regional firms that continually place a premium on relationships and delivering a higher level of service.”

Crimmins notes, however, that smaller firms still have to focus on the basics. “Relationships become a factor only when results are provided,” he says. “All clients ultimately focus on the bottom line. Given the proper platform to distinguish broker from broker, they would ultimately choose performance over relationships.” In the smaller firm he believes, clients are most likely to get both.

It’s the nature of the market that the mega-mergers will continue. It’s the nature of the smaller shops, to simply keep on keepin’ on, to keep their eye on that performance and those relationships. “As an independent boutique company,” says Crimmins, “all we can do is continue to make deals, develop stronger relationships with our clients and continue to get our name out there.”

Click here for link to Globe Street Article

http://www.globest.com/blogs/sior/sior/Boutiques-Resilient-in-Face-of-M-360498-1.html

O’Hare rail crossing delays will soon be over!!

Irving Park Rd (Rte 19) and York Rd (Elmhurst Rd) scheduled for Labor Day 2015 completion

Eastbound and westbound lanes on Irving Park Road east of York Rd (Elmhurst) will be closed on March 14-16, 2015 and March 21-23, 2015. BUT this should be the end of the grade rail tracks that has reeked havoc with traffic for nearly 60 years, since O’Hare Airport opened. Two months later on Labor Day, May 25, 2015, after the all concrete and intersection work is complete both the CP and CN rial will be elevated…no more waiting for the trains…supply chains rejoice!!

IL19 & York Rendering

More information on the project can be found by clicking this link to IDOT.

 

Do you expect to overpay on your lease?

US companies occupying industrial real estate, listen up!   The market has pivoted to a Landlord’s market, that means you will pay more.   Taking on this market without proper representation, well why not just tie a steak around your neck and walk into a Lion’s den…you’re dead meat.

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Chicago stats:

Unemployment is down to 6.2%

Vacancy rate has decreased to 8.2%, lowest since 2001!

15 million square feet is under construction!

This data tells us there are more people employed, the amount of available space is lowest since 2001, and developers can’t build enough space to meet demand (or to feed their performas).  What does it all mean? Asking prices are up and incentives are down like free rent, large tenant improvement dollars, and risk diversion, you are in a Landlord’s market… expect to pay more.

But you don’t have to.  Embrace the approach of creating a competitive atmosphere where multiple buildings are being seriously considered you should be able to compress the rental rate and get some concessions from Landlords. Consider the vacancy rate of 8.2% it reflects nearly 90 million square feet of available space in Chicago metro!

If you have a renewal or are considering a new location:

  • Engage a real estate professional who has access to on and off market properties
  • Go see everything. You may not have 10 options, but there should be three or four and you need to leverage them.
  • Give yourself time, 9-12 months before your back is against the wall.

This is nothing new, but its never been more important.

Client saves cash and risk exposure

DanSmo

 The Modal Group completes sublease in less than 60 days.

CHICAGO-In early 2013 The Modal Group represented a company that leased an air cargo facility in Bensenville, IL in the  O’Hare submarket of Chicago.  In 2014 that same company realized they needed to suspend the Bensenville operation so they engaged Daniel Smolensky, SIOR of The Modal Group to sublease the space. In less than 60 days the client had a fully executed sublease and their financial exposure and risk was diverted to the subtenant. With an aggressive marketing campaign Smolensky had over 5 showings and four offers in the first two weeks.  Smolensky continued to receive offers and negotiate with interested parties in the weeks to come and then settled on a company that was the best fit.  The rent will cover 100% of the client’s exposure including utilities.

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Iconic Chicago hot dog company is moving its HQ

Vienna Beef the legendary Chicago hot dog and sausage manufacturer is moving to a new facility in Chicago. They happen to be down the street from my house. It makes sense that they relocate, we’ll be sad to see them go, but  so happy they they are staying in the city!! Click here to to see full article.

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